Learn why it’s important for business owners to save for retirement outside of their business.
Business owners are amazing
Have you started your own business? Or perhaps you bought a business, like I did, and made it your own. Many of my clients are entrepreneurs who started their own business – they are psychologists; data analysts; business consultants; health care providers; fitness experts; marketing specialists; and more. They are all amazing, hard working, creative women doing their best to make their business a success.
Starting a business is hard
I bet any one of these women would tell you: the first few years of starting a business are tough! Building systems, making decisions, acquiring clientele, marketing – in the first few years of business most owners are just trying to break even, not to mention get a paycheck.
I can relate – for me it’s been over 9 years since I bought Tree Fort Financial from my dad, and so much has changed. It’s been an amazing journey, but a very difficult one too.
And then, there’s a point a couple years in (or maybe more!), when business owners have established their business and are (finally) making a healthy income. This is the time to consider how to prepare for the business owner’s future, and not only through the business.
Saving for my future outside of the business? The business IS my future!
Finally, your business is making enough to pay the expenses and pay you. This is where retirement saving – outside of your business – can enter the picture.
Now let’s take a step back for a moment. Many business owners believe that growing their business is the best way for them to save for the future.
They argue that the return they can get on a dollar invested in their business has way more potential than a dollar invested in a stock market index fund, which is essentially investing in publicly traded businesses. While they may not be wrong, there is a basic flaw in this thinking. This thinking assumes that you are going to sell your business for a profit at some point in the future, and use the resulting cash as your retirement nest egg.
The problem is, many small businesses don’t ever sell.
According to the Bureau of Labor Statistics, about 80% of businesses survive the first year; and about 35% survive for 10 years. This means 65% of businesses have failed by year 10!
Counting on a sale of your business to generate the cash you need for retirement, is probably not the most prudent idea.
No problem, you say, I just won’t ever sell the business. I will hire workers and keep receiving the profits from the business, and that will support my retirement. Hold on – that may not work either. This idea requires you to either hire a really great manager who will stick around until you die, or continue handling some management/hiring/business decisions yourself until you finally decide to close the doors. Many would agree that both of these ideas don’t sound like prudent retirement planning strategies.
So, it would make sense to set aside some money outside of the business for your retirement, as protection for the inevitable unknowns that will arise in your future. Setting aside money outside of the business also means that you’re not reliant on the business for your future, as well as your current, income needs. And that seems like a prudent choice.
Read more here about where to save for retirement as business owner.